MUMBAI: India is likely to witness the second highest demand for office space in 2014 among the top 30 cities in the Asia-Pacific region, according to a report by property consultancy Cushman & Wakefield, which says Bangalore is expected to be the biggest market in the country due to the expansion of IT, ITeS and multinational companies.

Bangalore is the second city in the list with an expected demand of 6.3 million sq ft this year while Tokyo leads the pack with 7.6 million sq ft. "IT/ ITeS has been greatly affected by the global economic scenario impacting the growth of the sector in India. With a more favourable dollar to rupee exchange rate and the improvement in global economic scenario, we expect the industry to benefit in terms of increase in exports of IT services from India," said Sanjay Dutt, executive managing director-south Asia at Cushman & Wakefield.

Expansion by companies will give a fillip to office space absorption in Bangalore, which will see a growth of 16 per cent in 2014 compared with the previous year, Dutt said, adding that a majority of the demand in the city would be concentrated in suburban locations such as Whitefield and the Outer Ring Road belt.

While office space absorption in Mumbai is likely to see a 93 per cent rise this year, the addition of 1.5 million sq ft office space will only keep its vacancy levels at a high of 25 per cent, according to the report. "Given the scenario, the rental values of these locations are expected to remain stable with a downwards bias," said Dutt.

Key suburban markets such as Gurgaon in Delhi-National Capital Region, and Malad and Goregaon in Mumbai have witnessed lower demand but large-scale leasing activity by companies.

An HR consultancy has taken up around 7,50,000 sq ft in IT Special Economic Zone (SEZ) development in Gurgaon while a Banking, Finance Services & Insurance (BFSI) company leased 180,000 sq ft for back-office operations in the Malad-Goregaon area.

Leading markets in the country recorded a 7 per cent decline in total absorption of office space between 2012 and 2013. "We had created about 1.8 million sq ft of office space in 2013, out of which we could lease only about 1.2 million sq ft. So, for us, leasing activity was about 20 per cent below our expectations," said Atul Chordia, managing director of panchshil Realty.

Surjit Singh, president of marketing in RNA Corp, agreed. "Even though there have been enquiries, leasing activity has been very slow in 2013 as people have been looking for better deals," he said, adding that RNA Corp's Corporate Park in Goregaon, which was recently opened for leasing, had seen slow lease transactions.

By the end of 2013, the total office space absorption is expected to be 22 million sq ft, down 11 per cent from the previous year.

According to the report, in 2013 nearly 25-30 per cent of the gross office space absorption comprised relocations and/or consolidations as many companies increasingly relocated to better quality, more efficient and cheaper office spaces in the suburbs and peripheral micro-markets across cities.

However, developers expect some improvement in the commercial space only after the second half of 2014. "Only once there is a stable government, we expect expansion activities by MNCs and IT companies to go up and we have planned launches only for 2015," said Chordia.is planning to launch two new commercial office space projects in 2015 in Pune. The report, too, predicts better leasing activity in 2014-15.

As 2013 saw subdued activity in the commercial office space, developers expect new demand to help boost office space absorption after the second half of 2014. "Last year, there was less activity in the office space sector, so we are planning to launch our commercial project in 2014 as we have seen good enquiries for them," said RK Arora, MD of Supertech, which plans to launch a 25-acre IT park 'Bazzel IT Park' in greater Noida in 2014.

According to Sunil Mantri, chairman of Mantri Realty, only 10-20 per cent of the total launches in 2013 have been commercial projects and the rest were residential. "Since commercial launches were fewer in 2013, we expect the old demand to be absorbed and newer demand to come in for 2014-15," he said.

This year, total office space supply is expected at 37 million sq ft, an increase of 12 per cent over 2013 while the current pipeline adds up to about 32 million sq ft for 2015. Bengaluru, Delhi-NCR and Hyderabad will be the highest contributors to the new supply. In 2014, the net absorption will see a marginal increase of 3 per cent over 2013, according to the report.

The report highlights that private equity investments for the first three quarters of 2013 increased 25 per cent over the corresponding period in 2012, primarily due to increased interest from funds in leased office assets, the report says. However, the total number of deals for the first three quarters of 2013 declined to 21 from 27 in the year-ago period, indicating an increase in the average deal size.

IDFC and Blackstone have invested in leased IT SEZ projects in Pune. Qatar Investment Authority has committed investments of $300 million, along with RMZ and baring Private Equity Partners in a fund, looking to acquire office projects across the country. The report says that nearly Rs 11,854 crore is about to be deployed in the real estate sector.

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